6 Common Payroll Mistakes That Companies Often Make

6 Common Payroll Mistakes That Companies Often Make
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A flawless and organised payroll system is one of the fundamentals of a robust business. Many businesses prefer to perform the task themselves to keep a tight control on the process as well as their finances. But where errors creep in—either because of procedural faults or lack of professional expertise—it could lead to damage on a long-term basis. 

Below we list some of the common mistakes that businesses tend to make while processing their own payroll. If you notice any of these mistakes on a recurring basis, it may be time to re-evaluate your payroll strategy. Ignoring them could lead to fines, penalties or worse. 

1. Misclassification of Workers

As a business, you probably have permanent as well as temporary workers on your rolls. Permanent employees must be paid salaries and benefits, while temporary employees must be reimbursed as per the terms and conditions laid out in the contract. 

Since salaries also imply taxes, the misclassification of employees could have a major impact on compliance. Defaults on tax payments due to misclassification of the workforce could result in the company paying the employees’, as well as their own, share of the taxes, coupled with penalties and arrears. Add to that litigation costs, loss of business reputation and the unnecessary time spent on paperwork which could have been better used in generating profits—and the loss is much greater than it initially seems to be. 

2. Miscalculation of Overtime Pay

Overtime pay varies from country to country, but is usually calculated at 1.25 times to two times the regular wages of the employee. Labour laws specify work hours and mandatory overtime pay to employees for work performed beyond stipulated duty hours. Government regulations mandate overtime pay for employees along with penalties for non-compliance. Managerial and supervisory staff are, however, exempt from any overtime pay. 

Your employees are entitled to contact the Ministry of Human Resources and Emiratisation (MoHRE) with their grievances related to overtime pay. Negligence in payment of correct overtime wages could lead to fines, penalties or worse. So, as a business, it is important to ensure that your payroll department is correctly calculating employee overtime dues.  

3. Errors in Providing Benefits & Compensations 

Although there is no provision of income tax in the UAE, companies do need to provide their employees with health insurance and enrol all UAE and GCC citizens under a government-approved social security scheme. Errors in enlisting employees under the relevant schemes could prove to be costly for the business. As a business, it is important to have correct and updated information regarding employee regulations to save yourself from non-compliance and legal action. Correct employee classification is fundamental in this regard. 

4. Salary Delays

Delays in salary disbursement could lead to major trust issues between the company and the employees. Irrespective of your frequency of payment—weekly, fortnightly or monthly—paying employees on time is of paramount importance. After all, your employees have their own obligations in terms of house rent, utility bills, insurance premiums, debt mortgage payment etc. which are typically tied to fixed dates. Businesses must make sure that salary is never delayed to maintain faith and trust in the company. 

5. Missing Payment Deadlines

Payments and contributions to social security schemes on behalf of the employee must be deposited with the government within a specific time period. Failure to make the contribution on time usually results in a late payment fee of 10% in the UAE. This could translate to unnecessary expenses which can easily be avoided with a streamlined payroll system. For large companies with multiple employees, late payment fees could end up being a huge drain on resources. 

6. Inefficient Payroll Process

As your number of employees increase, you will become more prone to payroll errors. These could be time-consuming and difficult to rectify. At the same time, changes in the law, changes in tax rates, documentation processes etc. increase susceptibility to error. As a growing business, it is important for you to invest in a good payroll management system which can eliminate dangerous errors. You also have the option of choosing a payroll outsourcing vendor which brings benefits like lower costs, and a chance to focus more on profit generating activities, coupled with better service delivery standards. 

Benefits of Outsourcing

We have seen how a weak or inefficient payroll system can cause lasting damage to your business. Managers and owners should keep an eye out for the above red flags which could be an indication of a larger problem within the overall payroll system. Should your business fail to effectively enforce an error-free mechanism, consider outsourcing your payroll services to an external vendor to enjoy benefits like economy and quality service delivery. 

Looking for a quality payroll outsourcing company? We can help. Just fill up the form below to get in touch. 

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